Why is This so Complicated? Yes, Virginia. We do Need a National Manufacturing Strategy.

No wonder we lost over 3 million manufacturing jobs in the last decade due to loss of U.S. competitiveness, and created no net new jobs in the economy because of it. We lacked any semblance of either concern for manufacturing or a national strategy. Now I know why we lacked a strategy. Anytime a President proposes one, he/she gets nailed by all too clever reporters/bloggers/pundits for being out of touch and in the pocket of special interests!

Latest example is a blog by liberal blogger Matt Yglesias at Slate that didn’t just say President Obama’s focus on manufacturing was ill-advised, it was a “foolish” “obsession”. Maybe it’s Matt that has the obsession…

He said the following: “it should be obvious that the path forward for America is to focus on our strengths in information technology and media, and not compete with the Chinese for manufacturing supremacy.” So, given that the IT in ITIF stands for “Information Technology” it should be pretty clear that there is virtually no organization in DC or the nation more committed to IT innovation. However, we also don’t have on ideological blinders. We understand that IT (and media) innovation is critical for the U.S., but it’s not enough.

The point, Matt, is that the United States needs a competitive traded economy (the sectors of our economy that are traded in global marketplaces: Massage therapy isn’t. Most manufacturing is. Grocery stores are not. Software is.)

Yglesias goes on to criticize the administration, in particular NEC head Gene Sperlings’ speech, about the importance of manufacturing to R&D: “If you want to subsidize R and D, then subsidize R and D—there’s no need for the backdoor of an across-the-board subsidy to factory owners regardless of how much R and D they actually do.” In fact the evidence does show that R&D and manufacturing are linked. Moreover, this is only one of many reason to support manufacturing.

He goes on to note, clearly without reading any of the scholarly literature, “On agglomeration, the irrelevance of manufacturing per se is even clearer. It’s not a coincidence that Twitter, Apple, Google, and Facebook are all located on a narrow corridor between San Jose, California and San Francisco, that all the movie studios are in Los Angeles, or that non-local journalism happens overwhelmingly in New York and Washington, D.C. Industry clusters happen in all sectors.” And exactly who said that clusters don’t occur in other sectors? But they clearly occur in manufacturing: jewelry in Rhode Island, optics in Rochester, pharmaceutics in Southern New Jersey/Philadelphia, automobiles in Southeast Michigan, etc.

His most amazing statement was perhaps:

Sperling notes that “if an auto plant opens up, a Wal-Mart can be expected to follow,” but that opening a Wal-Mart doesn’t bring an auto plant. But, again, this highlights the need for communities to have firms that are competitive in global markets, not manufacturers per se.”

YES. And, not to defend the Administration, but the Administration has never said they are only interested in manufacturing and not in other sectors being competitive in traded markets. See for example, the report yesterday on IP industries (e.g. movies and software). If the Administration came out with a software strategy, Yglesias and other professional naysayers and critics would say, why are you only focused on software.

Newsflash: the Administration is not only focused on manufacturing. But as the largest traded sector by far, you can’t have a valid traded sector strategy without a specific manufacturing strategy.

The critics, having probably never been in a manufacturing plant (Matt, have you ever been in one?) love to say things like: “The road to a more prosperous America is to learn from the most prosperous parts of the country, not to imitate Chinese clusters that are even poorer than America’s industrial hubs.” Manufacturing wages are nine percent higher than average wages in the economy. No one who is advocating for a manufacturing strategy, and certainly not the Obama Administration is advocating for competitive advantage in low-wage, commodity manufacturing. This is why we have global division of labor. But Boeing assembly of the carbon fiber 787 is not Chinese happy meal toy assembly.

And loathe that we should have a sectoral strategy, Yglesias channels the neoclassical thinking that,

“The potential of America’s most productive places is tragically limited by restrictive zoning policies that keep the cost of living high and population growth low. The number of American students getting degrees in computer science and other technical fields is actually falling even as the number of people going to college grows. Short-sighted politicians are under-investing in the transportation infrastructure even as people need to access our most vibrant labor markets. These kind of issues don’t do as good a job of addressing the anxieties of Midwestern swing state voters as visits to lock-making factories, but creating new billion dollar software star ups has a lot more to do with the future of American prosperity.”

I guess Matt is saying the Administration and Congress can’t walk and chew gum at the same time. We have a Surface Transportation Reauthorization Bill working its way through Congress (hopefully). The Administration has proposed STEM reform (see PCAST STEM report), that has included some proposals from ITIF, such as more Science High Schools. But these policies are simply not enough, even if we were to implement them. To think they would be is to woefully misunderstand the nature of global competition.

He goes on to fundamentally not understand economics:

“The scary thing about the factory-driven view of the American future is that it’s not totally implausible. The “insourcing” trend where firms move production back to North America is real enough. The drivers are rising Chinese wages and falling “unit labor costs” in the United States. But that’s just a way of saying that America can regain factory parity with China by eliminating the prosperity gap between our two countries—a very strange policy aspiration.”

No. If Chinese currency goes up or wage rates go up this has no direct relationship on U.S. standard of living, which is determined by one and only one thing (our level of productivity and number of workers working).

So, bottom line: the U.S. needs a national traded sector strategy and manufacturing is one key part of this. And if we are ever going to put this in place, so that the economic future of our kids is as good as it can be, bloggers like Yglesias need to understand this.

About the author

Robert D. Atkinson is the founder and president of ITIF. Atkinson’s books include Innovation Economics: The Race for Global Advantage (Yale, 2012), Supply-Side Follies: Why Conservative Economics Fails, Liberal Economics Falters, and Innovation Economics is the Answer (Rowman & Littlefield, 2006), and The Past And Future Of America’s Economy: Long Waves Of Innovation That Power Cycles Of Growth (Edward Elgar, 2005). Atkinson holds a Ph.D. in city and regional planning from the University of North Carolina, Chapel Hill, and a master’s degree in urban and regional planning from the University of Oregon.

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